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Sat 29 Mar 2008 10:51 AM

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West too suspicious of wealth funds

Voluntary code of conduct enough to promote good practice, EU Trade Commissioner Mandelson says.

The West is overly suspicious of state-backed investment funds from China, Russia and the Middle East, and a voluntary code of conduct is enough to promote good practice, EU Trade Commissioner Peter Mandelson said on Friday.

He was speaking at a forum at the Organisation for Economic Cooperation and Development (OECD), which had been asked by the G7 industrialised powers to suggest what policy should be adopted towards these so-called sovereign wealth funds.

The primary challenge, Mandelson said, was essentially a political one.

"How do we integrate these huge new players into the global financial system in a way that reassures the recipients of investment without casting the funds as potential villains?" he said, according to a text of his speech released to reporters.

"There is nothing inherently suspicious about sovereign wealth, or the desire to invest it productively," he said, noting that this was in fact the logic of such funds both in theory and in practice.

"So why are we having this debate at all? Looking coolly at the question the answer is - and I will put this as diplomatically as possible - that the biggest funds are in economies which have raised some sensitivities in our own politics," he said.

"No one is worried about Norway's plans for global domination. Chinese investment vehicles and the Russian stabilisation fund, on the other hand, are new investors, with huge reserves, backed by governments with mixed democratic credentials, substantial foreign policy projection and no track record as investors," he said.

Mandelson said that there were areas in which Europe would be right to be concerned about foreign ownership, certainly in defence and perhaps in energy supply.

The impact of investment by such wealth funds was otherwise desirable and welcome, he argued.

"We should be more worried if these investors were not interested in Europe," he said, saying it would be more a cause of concern if they did not rate the euro as a safe reserve currency or if they spurned euro-denominated assets.

He said a single international code of conduct was the best route to take, enshrining concepts such as periodic reporting and publication of business plans, without casting unfounded suspicion or excessive burdens on such funds, he said.

On a trip to China this week, OECD chief Angel Gurria said he saw no reason for new rules to police sovereign wealth funds as long as they were transparent and invested on commercial rather than political grounds.

Sovereign wealth funds now have assets between $1.9 trillion and $2.9 trillion and this could grow to $15 trillion in the next eight years, according to US Treasury estimates.

The International Monetary Fund (IMF) is examining the issue from the perspective of countries that have wealth funds, including Norway, Abu Dhabi, Singapore, Russia and China.

The OECD, a club of 30 mostly industrialised economies, is looking at the issue from the viewpoint of recipient countries.

The latest investment by China's fund, the $200 billion China Investment Corporation, is a stake of more than $100 million in Visa, the US credit card company that went public last week. (Reuters)